Gold Fields’ offshore plans hit snag

[miningmx.com] — AT A BRIEFING a while ago I remember Gold Fields CEO Ian Cockerill propounding the philosophy that to own a few big mines is better than owning many small mines, and though the obvious comparison at the time seemed to be with AngloGold Ashanti, in retrospect Harmony might have been even more pertinent.

But few could have expected that approach to be taken to the lengths of this week, when Gold Fields has on successive days announced the sale of two properties to raise no less than $730m or so – call it a shade under R5bn.

Bigger of the two is the group’s smallest operating mine, Choco 10 in Venezuela, which it bought for $360m in March last year and now represents a total investment of $425m.

It has, to be blunt, been a troublesome venture, so Gold Fields won’t be unhappy to offload it on to Rusoro Mining, which has other properties nearby. The minimum price is $532m: $150m cash, $30m convertible debt and 140 million Rusoro shares, which will give Gold Fields a 38% stake in that company. That’s a 25% return on Gold Fields investment, plus, Cockerill says, retaining exposure to any upside – though he might have added that it also gives exposure to the downside should Rusoro not make a go of it.

The second sale is the 60% stake in the Essakane project in Burkina Faso, to its partner Orezone, for a minimum of $200m: another $150m cash and $50m in Orezone securities or all cash at Orezone’s election. Gold Fields’ investment here to date is $47m, so that’s an even better return: a 200% profit on the cash portion alone.

Cockerill says that while Essakane is expected to make a good return and should be built, Gold Fields’ relatively small interest mitigates against it becoming a franchise asset.

But he’s adamant that the company is still fully committed to its strategy of international growth.

The two deals will generate at least $300m cash or R2bn at current exchange rates, and will be a useful contribution to either funding the major capex programme in South Africa or reducing debt.

But considering that Gold Fields’ current market cap is around R83bn, they’re not that important in the bigger picture. But they underline Cockerill’s preference for bigger assets, and also reflect a willingness to restructure the portfolio that’s not so common in the industry at this level.

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And they raise another intriguing question: if these assets are too small to be strategic, just where will Gold Fields find other assets of the right size to fit into its international strategy?

Seems to me it could well find itself bidding for listed companies, a tactic it attempted before with unhappy results.

Gold Fields may be making big profits on these sales, even if much of them are, in the case of Choco 10, still on paper, but if anything its underlying strategic position has suffered a setback.

Logically, therefore, last week’s announcements need to be followed up relatively soon with news of an even bigger acquisition. Now that will really be something to look forward to.